Targa Resources Corp (TRGP) 2018 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Targa Resources Corp. Second Quarter 2018 Earnings Webcast and Presentation. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the call over to Sanjay Lad. You may begin.

Thank you, Michelle. Good morning, and welcome to the second quarter 2018 earnings call for Targa Resources Corp. The second quarter earnings release for Targa Resources Corp., Targa, TRC or the Company, along with the second quarter earnings supplement presentation, are available on the Investors section of our website at targaresources.com. In addition, an updated investor presentation has also been posted to our website.

Any statements made during this call that might include the company's expectations or predictions should be considered forward-looking statements and are covered by the safe harbor provisions of the Securities Acts of 1933 and 1934. Please note that actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our recent SEC filings, including the company's annual report on Form 10-K for the year ended December 31, 2017, and subsequently filed reports with the SEC.

Our speakers for the call today will be Joe Bob Perkins, Chief Executive Officer; Matt Meloy, President; and Jen Kneale, Chief Financial Officer. We will also have the following senior management team members available for Q&A: Pat McDonie, President, Gathering and Processing; and Scott Pryor, President, Logistics and Marketing. Joe Bob will begin today's call with a few highlights, followed by Jen, who will discuss second quarter 2018 results. And Matt will then provide an update on commercial and business outlook before we open it up for questions.

I will now turn the call over to Joe Bob Perkins.

Thanks, Sanjay. Good morning, and thank you to everyone for joining.

I want to begin today actually by honoring one of Targa's retired founders and my good friend, Roy Johnson.

Our Permian Johnson Plant is named after Roy. For those of you who have not heard, Roy was killed in a tragic bicycling accident in late July. Targa would not exist if it were not for Roy's vision and inspiration. Roy has been retired for several years, but his legacy remains, and many of us will always have Roy's example in our heads and in our hearts. Roy's enjoying this fine earnings report from a better place, but he will always be missed.

When this year began, a lot of the external focus on Targa was related to our attractive growth capital projects and, for a while, perhaps even more so related to our ability to effectively finance our growth capital program underway.

For the first few months of the year, it became even more of a heightened topic as we announced additional attractive new projects requiring additional future CapEx. I believe that now, as Targa has continued to execute on our projects and on our financing plans through the first half of this year, with major projects on track, with the prospects for those projects even better than when we announced them, and with us already having funded our minimum equity needs for our 2018 growth CapEx program, the conversation appropriately shifts, more to focus on the strength of our asset footprint and the growth profile that is rapidly coming into view as we move through this year and into 2019.

Many of our important projects underway will be completed by the first half of next year, less than 1 year away. And we are working to complete those projects as quickly as practicable because the demand for processing, pipeline takeaway, fractionation and export services continues to increase.

Fundamentally, the strengthening outlook for domestic production volumes, including NGL commodity prices, is providing additional tailwinds for our businesses. And we'll accelerate the utilization of the projects underway, and we'll continue to drive the need for additional infrastructure.

Our operational and financial performance through the first half of this year has us on track to meet or exceed our previously disclosed full year 2018 guidance. And more importantly, our longer-term outlook for Targa continues to strengthen and continues to gain momentum and visibility.

Our continued focus on execution across the company was demonstrated recently by a number of successful highlights: successfully bringing online our 200 million cubic feet per day Joyce Plant in Midland Basin, which was essentially full at startup; commencing operations of our 60 million cubic feet per day Oahu Plant; and our 250 million cubic feet per day Wildcat Plant, which will support the expected volume ramp in our Delaware systems; expanding our joint venture partnership with Sanchez in South Texas to include a new long-term dedication by Sanchez and by all of their working interest partners for over 315,000 additional gross acres in the Western Eagle Ford, further strengthening the long-term outlook of our assets in the area; announcing our participation in an additional strategic residue gas pipeline called Whistler to very effectively link growing natural gas supply from the Permian Basin to key demand markets along the Texas Gulf Coast, further enhancing Targa's Permian Basin asset positioning and midstream service offerings to our customers; raising more than $300 million from the issuance of common equity under our ATM program during the second quarter, which, combined with our financing efforts earlier this year, means we have funded our minimum 2018 equity needs -- we have funded our minimum 2018 equity needs without the likely benefit of some pet log asset sales; and extending our TRP and TRC revolvers and increasing the size of our TRP revolver to $2.2 billion to support the future liquidity needs of our business.

This revolver, the largest for any high-yield company in the midstream industry, with very attractive terms, also highlights the support that we continue to receive from the bank community. So, our strategic initiatives are driven by continued commercial execution, project execution and financial execution like those examples. And the growth projects and related execution focus support high level of confidence in the future, confidence from increasing line of sight into strong long-term outlook at Targa.

With that, I'll now turn the call over to Jen to discuss Targa's results for the second quarter.

Thanks, Joe Bob. Good morning, everyone. Before we discuss second quarter results, I would like to deliver a special Targa shoutout to the many people in the field, accounting and elsewhere in our organization, who have put in significant extra effort during our recent financial systems implementation, while also balancing daily business priorities. Your efforts and amazing attitude will benefit our organization, and are much appreciated. I would also like to thank our vendors and customers for their patience and support as we make this important change to support our organization over the long term.

Moving to our results. Targa's second quarter adjusted EBITDA was $326 million, which was 26% higher than the same period in 2017, driven by continued strong Gathering and Processing volume growth, higher commodity prices and higher downstream fractionation and LPG export volume. Distributable cash flow for the second quarter was $225 million, resulting in dividend coverage of around 1x. Sequentially, adjusted EBITDA for the second quarter increased 6% over the first quarter.

In our Gathering and Processing segment, sequential operating margin increased $21 million, driven by higher natural gas inlet volumes in the Permian, Badlands, North Texas and SouthOK and higher crude oil gathered volumes in the Badlands and Permian. Second quarter Permian inlet volumes sequentially increased 8% from growth in each of our Permian-Midland and Permian-Delaware systems, plus the addition of volumes for processing at the Joyce Plant that were previously being offloaded to third parties. Badlands' natural gas volumes increased 17% over the first quarter, with our Little Missouri facility now operating at capacity. Inlet volumes in North Texas sequentially increased 5% as we benefited from incremental short-term volume, a trend which we do not expect to continue as we look through to the balance of this year.

Inlet volumes in SouthOK increased 4% over the first quarter, driven by new commercial arrangements and continued growth in the Arkoma and SCOOP regions. Our second quarter crude oil gathered volumes in the Badlands sequentially increased 19%, driven by strong production growth in the basin. Permian crude volumes gathered in the second quarter were up 35% over the first quarter.

In our Logistics and Marketing segment, the sequential decrease in operating margin of $9 million was predominantly attributable to seasonality in our marketing businesses, and was partially offset by lower operating expenses. Fractionation volumes increased by 6% sequentially, averaging 412,000 barrels per day in the second quarter. At our Galena Park facility, we averaged 5.8 million barrels per month of LPG exports, which was a stronger second quarter than recent years, driven by improved seasonal fundamentals.

Moving to other finance-related matters. The fair value of the earn-out payments for our Permian acquisition is currently estimated to be $312 million, with the payment payable in May 2019. The $61 million reduction in the contingent consideration compared to the first quarter estimate is driven by a decrease in underlying volume forecast expectations over the remaining short measurement period.

During the second quarter, we executed additional hedges for Targa's percent-of-proceeds equity commodity position. Based on our estimate of current equity volumes from field Gathering and Processing, for the second half of 2018 we have hedged approximately 90% of condensate, 80% of natural gas and 75% of NGL volume. And for 2019, we estimate that we have hedged approximately 75% of condensate, 65% of NGL and 60% of natural gas volumes.

On June 29, we closed on the amendment and extension to 2023 of both the TRP and TRC revolving credit facilities. The TRP facility was increased from $1.6 billion to $2.2 billion, demonstrating strong bank market demand, and we were able to lower borrowing costs relative to the prior facility. The TRC facility size remained unchanged at $670 million.

At the end of the second quarter, our consolidated liquidity was approximately $3.1 billion. On a debt compliance basis, TRC's leverage ratio at the end of the second quarter was approximately 4.0x versus a compliance covenant of 5.5x. Our consolidated reported debt-to-EBITDA ratio was approximately 4.5x.

Our current 2018 net growth CapEx estimate remains unchanged from our previous update, and is approximately $2.2 billion, with just over $1 billion spent through June 30. Full year 2018 net maintenance CapEx is forecasted to be approximately $120 million, with $46 million spent through the second quarter.

Related to funding our capital program, we have been very successful utilizing a multifaceted financing approach, and are well positioned from a balance sheet perspective looking forward. On our first quarter earnings call in early May, we announced that we had raised $87 million through our ATM program and, given we had no project announcements or other events that put us in a blackout for the balance of the second quarter, we were able to raise an additional $283 million for a total of $370 million raised year-to-date via our ATM program. The ATM continues to be a very useful tool for us, and our second quarter capital raise demonstrates our access to capital as a liquid C-Corp.

The combination of our ATM proceeds, our DevCo JV financing and the sale of our inland marine barge business means we have raised approximately $630 million through the first 7 months of the year, which is about 30% of our 2018 net growth CapEx budget. We also continue to make progress on the potential sale of terminals in our petroleum Logistics business, which would further supplement our financing program, and allow us to deploy capital into more accretive opportunities.

We provided 2018 financial and operational guidance in February to provide some level of insight into our expectations for continued year-over-year growth. Our performance year-to-date in 2018 has been strong, and we expect it to continue. But our preference is to avoid quarterly updates to that guidance because we believe investors are better served by focusing on our incredibly attractive long-term value proposition. With each passing quarter, we move closer to 2019, when a significant number of our growth projects will come online. Given an outlook in 2019 and beyond of increasing EBITDA, increasing operating leverage and lower CapEx, coupled with demonstrated access to public and private capital markets, means we are very well positioned to finance our growth capital going forward.

With that, I will now turn the call over to Matt to provide an update around the execution of our strategic priorities and our business outlook. Matt?

Thanks, Jen, and good morning, everyone. Commercial activity and production in many of our operating regions is increasing, and we expect this positive trend to continue. In the Permian, the Joyce Plant came online, and was almost immediately full.

Our 200 million cubic feet per day Johnson Plant is expected to be complete in late September, and will be highly utilized when it comes online. Inlet volumes on our Permian Midland systems increased 11% sequentially, and the 2% sequential increase on our Permian-Delaware systems would have been 5% had we not been impacted by some scheduled plant downtime in our Versado system. In the Badlands, our Little Missouri complex is operating at capacity, and our LM 4 Plant expected online around the end of the year is already much needed.

Turning to the Downstream Business, the frac market continues to tighten, and we expect Train 6 to be fully utilized when it comes online in the first quarter of 2019.

Our Channelview crude and condensate splitter will begin operations around late September and early October.

Permian takeaway for all commodities is tight and tightening, and we are closely monitoring this to proactively manage such issues for our customer volumes. We believe that Targa customers are relatively well positioned, and that basin infrastructure constraints caused by growth rates even more robust than expected, will be temporary, mitigated by economic and other logistical factors.

The short-term impact of takeaway issues on Targa's volume growth should be on the margin of continued robust recent growth rates. We are already seeing some natural activity moderation, but still expect strong growth from this area.

Jen mentioned that volume forecast associated with our Permian acquisition resulted in the decline in the estimated earn-out payment. I would like to point out that the volume growth associated with the acquired assets is still in the very high double digits, and is expected to continue well beyond the earn-out period.

Construction on Grand Prix continues, and the project remains on time and on budget, with the pipeline expected to be fully operational and supporting NGL takeaway from the Permian, Southern Oklahoma and North Texas in the second quarter of 2019.

Construction on GCX also continues, and the project remains on time and on budget, with the pipeline expected to be fully operational in the fourth quarter of 2019, which will certainly provide some much-needed relief on the residue side moving volumes from Waha to Agua Dulce. Our focus across our asset base continues to be on getting infrastructure in place to support the needs of our customers. And when you think about the projects that we are now investing in -- 2 Bcf of additional processing capacity, 100,000 barrels per day of additional frac capacity, Grand Prix, GCX, Agua Blanca, Whistler -- Targa is clearly committed to continuing to provide our customers with best-in-class service, reliability and optionality.

2018 growth CapEx is at historically high levels for Targa, largely as a result of Targa's single largest capital project in Grand Prix and all of the necessary processing adds across our Gathering and Processing footprints. When we think about projects beyond what is already announced, the tightness in fractionation capacity at Mont Belvieu and the outlook for NGL volumes to Mont Belvieu is accelerating customer demand. Our fractionation facilities at Mont Belvieu operated near full during the second quarter, partially offset by some debottlenecking we undertook to enhance system reliability and operational flexibility.

Fractionation capacity at Belvieu is expected to remain very tight through 2019 even with our Train 6 frac train coming online.

We continue to progress on permitting additional fractionation, and have begun ordering long lead-time items to best position ourselves to move quickly through construction once we have our permits in hand.

We also continue to enhance our connectivity to our petchem customers facilities, and are well positioned to capture an increasing share of this demand growth, as new petrochemical facilities move towards diversifying their connectivity to supply.

Collectively, we remain on track to bring online a substantial portion of our organic growth projects currently under construction, including a number of processing plants, frac Train 6 and Grand Prix, within the next 6 to 12 months, which provides us with increasing line of sight to significant growth and adjusted EBITDA and cash flow in 2019, 2020 and beyond.

Looking ahead, we expect capital expenditures to be focused around incremental processing expansions, which will generally direct incremental NGL to Grand Prix, and drive additional fractionation and LPG export expansion opportunities, which require significantly less capital investment directly linked to the increasing volume through our systems.

We remain focused on executing on these projects that we have underway and on securing attractive sources of financing that enhance and maximize longer-term shareholder value.

Our balance sheet and dividend coverage are expected to strengthen significantly as our projects underway are completed in the near term, and as our EBITDA increases.

We are very excited about the outlook for Targa and its shareholders.

So with that, operator, please open the line for questions.

(Operator Instructions) Our first question comes from TJ Schultz of RBC.

I think just, first, on the Permian, just as you discussed some moderation, maybe, in Permian activity, not surprising just given the takeaway. Is there any change to your view on Grand Prix volume potential by 2020 at all? And as you think about expansions there, are you still moving forward with the longer lead-time items to prepare for that expansion?

Yes. I want to be clear. The moderation is moderation in a growth rate, okay? Not moderation in a volume. It's a very active area with growing production through our Gathering and Processing, growing production from there very soon to Grand Prix, third-party volumes to Grand Prix. You asked if there was anything different in our outlook. When we initially announced this project, we are significantly better. And I think everybody who's been monitoring the basin and our success knows that in an outlook for Grand Prix. We have been ordering long lead-time items for all of our important projects, and that would include for Grand Prix. The long lead-time items to expand Grand Prix are not expensive. The purchase of pumps and the installation of pumps is a small fractional addition on that project when necessary.

Okay, understood. And Delaware volumes in 2Q, the Versado downtime that was planned and you mentioned, was that contained just in 2Q? And just what would you expect? Or would you expect kind of a catch-up back into 3Q?

Yes. So that was, as we mentioned, the sequential growth of 2%, it would have been 5%. So on average, for the quarter, is about $12 million a day, which was impacted on the Versado system. So we would not expect that impact in Q3. Our longer-term outlook for that area, whether it's the Versado, or even just anywhere in the Delaware, is kind of up and to the right. We said, for the acquisition, kind of very high single digits. We're seeing strong growth out there. It's just, frankly, happening a little bit slower than, I think, our estimates at the beginning of the year.

Okay. Just lastly on financing. Having satisfied the ATM for 2018 already, can you just expand on the flexibility you have for financing into 2019, whether it's maybe prefunding that on the ATM? Do you prefer to tap some of the private capital again and just expectation on closing the asset sales this year?

TJ, before I turn it over to Jen to answer that, I just wanted to correct. I said high single-digits growth rate for the acquisition. It's actually high double-digit growth rate. So I just wanted to make sure...

We had a lot of people making hand signals on that.

I think when we look forward, I think consistent with our track record, we're going to continue to proactively manage our funding to maintain the balance sheet flexibility that we've worked very hard to get through a number of actions in 2016 and 2017. We're really pleased with the success that we've had thus far year-to-date, tapping a number of different tools to raise capital. And I think that's what you should expect going forward. That's been very consistent with our messaging over the last year plus, and I think that's how we'll continue to approach it going forward, utilizing a multifaceted approach.

Okay. Just on the asset sales, I mean, is there still the process in place there to try to get that done this year?

I called it likely.

Yes, absolutely. So we announced that we are evaluating the sale of our Baltimore, Sound and Channelview terminals. And so there's been a lot of interest from the market for those assets, and we are continuing to proceed through the process. Our expectation is that the assets are likely to go to more than one buyer in more than one transaction. And so it will just take us a little bit of time to work through all of that.

Our next question comes from Jeremy Tonet of JPMorgan.

Just want to start off on the Whistler project here. I was just curious. I know it's kind of early innings here, and there's only so much you can share. But as far as proportionate ownership in this project, would you like to kind of link that to what levels of volumes you'd be committing? Is that kind of how you think about how this would fit into your portfolio of growth, longer term?

Yes. So we haven't given specific equity percentages for the pipeline. But I think generally thinking about it, the equity ownership related to the MBC commitment is a good way to think about it generally.

Great. And then, Matt, kind of building off some of your comments there with the ramps to the Permian plant. In the Delaware, with Wildcat and Oahu there, I was just wondering, with the ramp, how do you guys see, I guess, Permian takeaway constraint? Do you see that kind of influencing the ramp there? Or have you guys kind of locked up the FTE, where you feel good about being able to place all your molecules out of the basin?

Yes. There's really a lot that can be said on that. I'd say, as far as producer activity and the volume ramp, we've got a diverse set of producers, whether it's in the Delaware or Midland. And each and every one are kind of evaluating the different takeaway constraints a little bit differently. There's oil, NGL, residues. There's different constraints, and different producers have different options depending on their portfolio of production. We have seen some producers that have a good footprint in other basins, so saying, instead of adding the rig here in the Permian, we're going to add it to maybe the Bakken or somewhere else. So we have seen some of that. Are there going to be impacts? We think there's going to be some impacts, as we said in our script. We think those are going to be on the margin to a growth rate. So we still do see strong growth in 2018 and into '19. It's just how much that growth rate will be impacted. And it will vary by producer. And that's something that we're going to have to kind of work out as we go through time, and so are producers.

That's helpful. And then, Jen, just wanted to touch the finance a little bit here. And clearly, Targa has a very deep portfolio of attractive growth projects here. But just wondering, as far as the CapEx spend here, is this kind of like the first half of '18 is like the pig in the python? Like this is the high watermark as far as kind of CapEx spend? It looks like the back half of '18 is stepping down a little bit versus the first half of '18. I know you're not giving 2019 guidance yet, but just would you expect that to kind of trend down a little bit? Or anything else you can share there?

Sure, Jeremy. So I think the pig in the python, I have heard Joe Bob say it before. So I'm not sure if you got that from him, but I think we've talked about that.

She said people at Rice didn't understand that.

I said Canadians, really. But I think from our perspective, we've spent a little over $1 billion year-to-date. I think that you can expect that, that pace will continue, particularly as you think about the timing of when projects come online early in '19, such as Grand Prix and others. I think, from our perspective, we've obviously taken a number of important steps already with the private capital, with some public equity and with some strategic joint ventures. And I'd expect that, that sort of multifaceted approach will continue as we look forward to funding 2019, when we'll obviously benefit from increasing EBITDA from the projects that are coming online either this year or next year. And I think that's what gives us the confidence really, going forward, when we think about the long-term outlook to finance our business.

Our next question comes from Colton Bean of Tudor, Pickering, Holt.

So just switching gears here a little bit to the NGL marketing. It looks like we've had a couple of strong quarters here, and actually had lower seasonality than we would have expected in Q2. Can you just provide a little bit of context on what's driving that, and maybe the sustainability of those results?

Yes. I guess, there's a couple of pieces there. I mean, we have -- for the wholesale propane business, which is a smaller part of our business, I would say we have pretty regular seasonality. And you see there'd be some downward pressure in Q2 and Q3 for that business. But what you saw was an uptick in fractionation volumes, just strength in overall volumes through our system on the fractionation side provided some uplift to our margin. And you actually saw NGL exports, our LPG exports, relatively strong compared to last year. Even it was sequentially down in Q1, we're just seeing continued strength in the export business.

Got it. And then just on Whistler. So maybe a question for Jen here. In the release, you mentioned the likelihood of project financing. Would the intent be to retain cash to reduce the debt load? Or would you guys look to pay out distributions after covering that interest burden?

I mean, I think from our perspective, Whistler, as a project, just given the nature of the contracts associated with it mean that it's a very attractive candidate for project financing. So that's why we think that, that is a logical option for us to consider as the project moves forward. When we think about what we are going to do with our additional cash flow as our EBITDA ramps looking forward, I think we very consistently have been saying that our goal is to increase coverage, reduce leverage. But really, we're a little premature in getting to that point and being able to directly point to what we think we're going to use that additional cash flow for.

Okay. And then, I guess, just last one for me here. So maybe a little bit limited in terms of disclosure around what you guys can do on the hedging strategy. Looking at next year, you do have a little bit of a step-down for Waha and Permian Basin swaps. Is any of that concentrated in terms of maybe Q1 through Q3, given the FTE that you guys have on Gulf Coast Express? Or are those numbers the daily averages, kind of ratable across the year?

We haven't said that they were ratable across the year. We provide that annual guidance very consistent with our previous approach. How we are managing the particular basis, we're taking into account the timing associated with GCX. And we also were taking into account, in our longer-term view, the likely timing of Whistler as part of managing that overall exposure.

Our next question comes from Shneur Gershuni of UBS.

Just to start off, maybe to step back a little bit and look a little bit bigger picture. I mean, we're seeing kind of a surge in overall NGL production. I believe in your prepared remarks, you talked about tight frac capacity. There are some thoughts about a need for more LPG export capacity. Can you frame for us what the impacts are to Targa beyond what you've already announced thus far? Does Grand Prix come online at its fully expanded capacity that you'd originally outlined? Do you have spare capacity away from Belvieu, like Lake Charles, for fracs? And even on the LPG export side, I know your guidance doesn't include spot volumes, but are there opportunities to expand there or fully utilize the LPG export facilities?

This is Scott. I'll try to tackle some of that laundry list that you've put out there, and obviously get help from my colleagues here. But first and foremost, when you think about the NGL growth, you look what's happening in the Permian, both in the Midland and the Delaware side, as it relates to our plants as well as third-party activity that's out there. A lot of that is feeding into Belvieu today. So, overall picture, relative to the tightness that we alluded to in our comments around fractionation capacity and the tightness in the marketplace filling up that fractionation capacity, is very evident today. Some of that's related to new growth. Some of that's related to ethane recovery. And all of that, together, has moved to a point where Belvieu really is going to be tight, as we said, through 2019. From a Targa perspective, obviously, we've tried to be in front of this with the announcement earlier about our Train 6 expansion, which will be online at the end of the first quarter of 2019. And obviously, we indicated in our notes today that we are actively pursuing permits for multiple fractionators that, once we have those in hand and the advent of long lead-items purchased, we will execute on those projects as quickly as possible to bring that capacity online as well. So all of that really is a great picture for us. It's a great picture for the industry. And certainly, when you look at it, steered toward Mont Belvieu, where we've got a significant footprint, both storage and fractionation, and then our export capacity, we feel that all of that will be moving toward capacity limits at some point. We also have been ahead relative to announcing projects in earlier quarters where we were increasing our capabilities, particularly around increasing our capacity on exporting butanes. So pipelines entering wells at Belvieu, increasing that capacity, basically redoing or rebuilding a dock at our facility to make sure that we've got full capacity on all 4 of our docks to maintain that level of flexibility. At what point we will continue to look for small projects as well as large projects on the export side to enhance that capability. Certainly, our expenditures to enhance our capacity is much -- from a capital spend -- is much smaller than, say, a greenfield project. So we will continue to look for ways to do that, and be there when the market demand surfaces.

Maybe switching gears a little bit. In terms of your overall outlook through 2021, I think on the last call that you'd mentioned that you could potentially hit the $2 billion target earlier than 2021. Given today's results, and given your overall outlook as to how you're seeing things, are you more confident in potentially hitting that target earlier than expected, the same, worse? Just wondering if you can give us same color around that.

I understand the question. What I tried to describe was components of that long-range outlook that we developed in May of 2017, and talking about those components and new components, all of which we feel better about today than when they were announced. So yes, I've got very high confidence in that curve that was created some time ago. That high confidence in the curve is due to clear views of what are now short-term projects, a whole lot of it coming on in less than a year, and how we've commercialized them since announcement. So yes, I'm going to tell you all I'm confident in it, super confident in it. And that probably should translate into likely higher, likely earlier without giving you a new number for that. I hope that's helpful. That's all we've disclosed.

I appreciate it, and it definitely is helpful. And one final question for Jen. In terms of funding, I know that this question keeps coming up. Just specifically with the potential for the splitter sale, does it need to come online before you're able to market the project as for sale? Just wondering if you can sort of give us a little bit of color around that.

Well, importantly, I'd remind you, so what we said that we're evaluating the sale of were three sort of discrete terminals. So obviously, the Channelview crude and condensate splitter, but also our terminals up in Sound Washington as well as our terminals in Baltimore. And sort of directionally, we have said that when you think about asset op margin contribution from largest to smallest, it's sort of splitter, then Sound, and then Baltimore. We have gotten feedback from some buyers that they may prefer to see the crude and condensate splitter fully operational in order for us to maximize the value that we think the asset is worth. And so that's one of the things that we are obviously balancing as we work through the evaluation of the sales of that particular terminal and really all the terminals.

In your comments before, I think you said that it's late 3Q, early 4Q is when the expected startup is?

That's right. Matt said sort of late September, early October.

Our next question comes from Darren Horowitz of Raymond James.

Matt, in your prepared commentary, you talked about increased NGL recoveries. And obviously, on the ethane side, we've seen regional ethane frac spread economics improve. With the expectation that, that should continue into the end of this year, how much of a benefit from just margin capture perspective do you think that could lead or drive for you guys in the back half of the year? I know like, previously you've talked about a nickel moving composite NGL's basis, Belvieu being plus or minus $9 million, but I'm specifically wondering, from the ethane potential, what that could mean.

Yes. So we haven't given any hard metrics for enhanced ethane recovery relates to Y EBITDA for us. We would benefit generally from higher ethane prices. We'd benefit in the G&P side of the business, and then more volumes through our fractionation facilities. So it is generally positive for us as recovery ticks up, and we have seen that. We'll benefit even more once Grand Prix comes online. So mid-next year, we're able to capture both the transportation and the fractionation. We'll benefit more from that. But we haven't kind of given any -- hard numbers for what that can look like. I just say, generally, more recovery is beneficial for us.

Okay. And then switching over to your comments around the Whistler project, and the proposal there. To your point on residue gas takeaway out of the Permian and a lot of that gas converging effectively on Waha, and then moving into the Agua Dulce area, how do you think about the potential scale for Whistler and commitments versus what a competing project, for example, like Permian Highway, could achieve in the time line across with both of those pipes are marketed?

This is Pat. I mean, fair question, obviously there's 2 competing projects, and if you think back over the last 1.5 years, as many as 13 or 14 projects announced. As Matt alluded to, the kind of the formula or recipe for getting a project done has been a volumetric commitment for an equity position in the pipe. Certainly, Kinder Morgan's got a valid project, as do we. Do both of them get done? I can't answer that. I really don't know the -- what they've got left to do, but I certainly have line of sight on our project. We have really good commitments in place from industry players that have a lot of experience and a lot of growth in their forecast for the midstream side of the business they participate in. And honestly, in the conversations we're having incrementally, we feel very good about the project. We've got to get it done. We like where it initiates. We like where it terminates into the marketplace, both feeding Mexico and the growing LNG markets. And so all we can do is say, stay tuned, and we expect it to get done.

Our next question comes from Tristan Richardson of SunTrust.

You just mentioned the debottlenecking opportunities on the fractionation side, and, Scott, you mentioned sort of looking for those opportunities up and down. Can you talk about what those activities could add or have added on the capacity side for fractionation while we await Train 6?

What I would say is that it's a variety of projects. Obviously, as you look at your facilities, you're going to look for ways to improve the operation across the number of fractionators that we already are operating today. With that said, I'm not going to give you a volume outlook of what that would looks like. What I would tell you is a lot of that focus was on reliability and sustainability. As these volumes start ramping up, we want to make sure that we have long run times without any bottles in our system to ensure that we are performing for our customers at the highest degree. And as a result of that, we think that we've become a very attractive player in the marketplace, and continue to be an attractive player for our customers on the downstream side.

Tristan, I want to tip my hat to the team. First of all, having their high beams on to be looking for those opportunities prior to being completely utilized, and getting that work done at the right time to prepare for that very near future of completely utilized, this was big bang-for-the-buck investment in that cycle, and it was well executed.

That's helpful. And then just you guys talked about opportunity for both processing capacity additions and frac capacity additions, given what Whistler would add. Would the idea generally be to time any incremental opportunities with what you're expecting the online date for Whistler to be, or given how tight we are on the frac side, would there be opportunities to pull some of those expansions forward ahead of Whistler?

Yes. I think when we think about growth in our G&P business, and then further downstream, we think of it more as kind of as we're processing plants, as G&P inlet volumes are growing, that's going to be the driver for additional NGL production, which would then necessitate further investment downstream on fractionation or potential export expansions. The Whistler, part of those volumes are from the residue gas takeaway from our processing plants that we're adding. But there's also, as you've seen the list, additional equity owners in that pipe. There's supply coming from many different areas for Whistler. So I kind of decouple that, and think about more on the adding processing plants from the G&P side to feed the...

And the startup of Grand Prix to even better feed the frac...

Yes, exactly.

Our next question comes from Matthew Phillips of Guggenheim.

I just want to touch on the fractionation side a bit here in terms of this past quarter and the trend there. I mean, volumes have continued to tick up, but frac revenues have come down. And how is -- is more of this being allocated to commodity sales versus a pure fee-based arrangement? I mean, how should we look at that going forward?

Yes. When we think of our fractionation business, it's a -- we think of it as it's basically a fixed fee business. There is a piece of the fractionation business, which is a pass-through that we talk about, which does hit revenue and OpEx. So with gas prices dropping, that can impact our revenues, and then impact our OpEx and things like that. So we really tend not to focus too much on revenues. That can -- there can be some noise in revenues. We think of it more on a gross margin -- or really on an operating margin basis.

Got it. I mean, so does that imply the pick volumes are going to have more seasonal sensitivity, right, than if you're just getting a fee for fractionation services? Is this -- does this -- sorry. Go ahead.

It is a fee-based business, but you don't see 100% of the fee in the revenue without a deduct in the expense. And we can work you through that a little bit more.

Yes. Matt, this is Jen. Sanjay and I can walk you through the different components because I think where you are getting your number from, there's some noise in there that I think we can help you through.

Okay. That works. And then on the -- for Badlands, Bakken side of things, a pretty huge step-up in volumes here year-over-year. Just given the trend of Permian moderation of growth, more folks moving to other basins, what do you guys see as the midterm outlook here? And do you see further upside in the JV with Hess?

Yes. I'd say we feel really good about our outlook up in North Dakota. We've seen volumes increase. The LM4 plant can't come online fast enough. So there is a need for additional processing capacity up there, not just by us, but by others. So we're working to put that in place. I think that our expectations for filling up that facility really just continues to improve as we go through time. So the outlook up there, I'd say, is good and even getting better.

Our next question comes from Craig Shere of Tuohy Brothers.

...your financial outlook.

Craig, we only heard 2 words.

Yes. We only heard financial outlook.

I'm sorry. Is this better?

Yes.

Yes, we can hear you now.

Okay. Looking at Slide 9, your financial outlook long term, there's 2 things that jump out at me. One is, obviously, it's over a year since you issued the main part of the chart. And second, all of those add-ons on the right, another couple announcements and you're not going to be able to fit it on one page. So my question is, and I appreciate you want to keep your targets a little close to the vest and not update every other quarter, but could you see, by the fourth quarter call, refreshing this?

Well, before you start, the other piece of this that I do hope jumps out is embedded in the footnote, which is that when we developed this guidance, it was based on a $50 crude environment flat through the forecast period, and $0.60 NGLs flat through the forecast period. So that, to me, is also one of the sort of key component pieces that really jumps off the page. I think from our perspective, when we think about that long-term outlook, we're in a period where we really need to execute. So these projects that we've now been talking about for 18 months plus, key projects like Grand Prix, we need to get them online, and then you'll start to see, really in our results, the impact of such accretive and attractive opportunities. And as we move through the balance of this year, move through the balance of 2019, there are just more and more incremental projects that are going to contribute. I think from our perspective, obviously, our investors would like for us to be updating this real time, and we understand that. But we do try to give you a lot of directional color that we certainly feel like a lot has improved since then. It begins with commodity prices, and then the associated volume projections that we made in the $50 per barrel flat crude environment. Obviously, that has improved since then as well. And then we've had all of the commercial successes that you rightly point out. We'll need a smaller font if we add any more projects the next go-round.

Okay, fair enough. And then you're absolutely correct, Jen, in pointing out the commodity benefits, and then also the fact that you didn't include anything that wasn't contracted on the LPG export side. It just seems that the long-term Street outlook may be unrealistically conservative still, and a little help from you guys within the next couple of quarters might be useful.

Understood. The long-term Street outlook is also not out 5 years. We work hard to try to create a view and an outlook -- and calling it an outlook -- for folks who want to look beyond that quarter and next. And we're going to keep trying to add more information. Part of that information Jen's pointing out will be actuals very soon with the startup of many of the important projects occurring in less than one year. I hear your advice. We'll try to take it to heart. You started out the question, would we likely be reprinting this chart next quarter? I think because we've answered it several times that people should hear that we're unlikely to be reprinting this chart and redoing it completely in the next quarter. But as I answered Shneur, you do hear the confidence, okay? You hear that we've got line of sight on that curve, like improved by its becoming shorter and shorter term. And that confidence probably does mean that we believe it's above the curve and/or earlier, which was another way the question was asked. And we'll take the question to heart. We want to provide the information and see where it goes.

Great. Just one more quick question on capital funding. Jen, to the degree that you are successful with the downstream petroleum Logistics Asset sales, do you see that as kind of a downpayment on first half '19 spend as you think about, beyond that, obviously having a much more power of funding with hard declines in CapEx and huge increases in retained DCF?

I think from our perspective, we view funding really as fungible. So there isn't a line in the sand that we think by x date, we want to have completed 2018 financing, and then we can sort of then begin to look forward to 2019 or beyond. I think, in our view, what we're trying to do is maintain the balance sheet flexibility that we've worked very hard for. And as a result of that balance sheet flexibility, we may or may not fund our CapEx program with as much equity as we historically have, particularly with the EBITDA ramp that we can see before us. But I think we'll just continue to move through time using the multifaceted financing approach. I think the potential sale of our terminals business is an important piece of that, but everything remains a tool available to us. And I think we've demonstrated through our track record our willingness to utilize different tools. And so I think that's what we'll continue looking forward.

Our next question comes from Sunil Sibal of Seaport.

Yes. A couple of questions for me. First, going to the crude gathered volumes in Permian. Seems like very strong sequential pickup in those volumes. I was just kind of wondering, is there any timing issues there? Or is that kind of a good ramp-up that we can assume for the remainder of the year?

I mean, our Permian crude business is obviously a relatively new business for us that we acquired through the Outrigger acquisition. And so you're starting from a small base. So as our commercial team continues to make progress, and they've executed a number of very attractive contracts, you will continue to, I think, see volumes increase from there. Whether -- we're not going to provide, obviously, guidance on such a small piece of our business. But 35% uptick quarter-over-quarter is very nice for that business, and we expect that it will continue as the activity in the Permian continues.

Okay, got it. And then some of your competitors in the midstream space talked about cost pressures from steel tariffs considering that you have a fairly robust capital program. I'm just wondering if you're starting to see some of that impact also.

Yes. So for our projects that are on the drawing board, that pipe was already ordered and done. So we don't have an impact to our current capital budget or any material impact to our capital budget for those items. Going forward, for new processing plants, new facilities, the actual steel cost is a relatively small component of the overall infrastructure, whether it's a processing plant or a fractionation facility. So we don't see any material impact from the cost and steel tariffs.

And it's a year or two out. I'm not getting you precise numbers. An average Targa plant out there, it costs x. The plant purchase piece is probably 15% to 20% of that x. That's where most of the steel is in the plant. And the steel is, call it, notionally 20% or 30% of that 15% to 20%. And there's some other steel, but you can see how an increase in steel -- I saw someone publicly say may impact their steel prices by 20% to 30% -- is not going to be but single-digit impacts on our cost. And that's manageable within new contracts and new deals as we go forward.

There are no further questions. I'd like to turn the call back over to Sanjay Lad for any further remarks.

Thanks to everyone for participating on this morning's call, and we appreciate your interest in Targa Resources. Jen and I will be available for any follow-up questions you may have. Thanks, and have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.